Notes on the Revolution XXII/ Dollar/Mark/Yen
Jude Wanniski & David Gitlitz
October 24, 1995



BIG BIRD: The GOP libertarian wing in Congress is talking itself into a harder line posture against the President and congressional Democrats as the countdown begins on budget reconciliation. Their conservative cheerleaders in the media are stoking the fires, with The Wall Street Journal editorial page taking dead aim at Big Bird and public broadcasting. The amount of money is small, but the images projected are not. In Monday’s op-ed, Max Boot produced the definitive polemic against use of taxpayer funds for public radio and TV, which is really the country-club “let them eat cake” argument against all government social spending. Anything available on public broadcast will show up on commercial broadcast or cable TV if PBS disappears, runs the argument. Wrong. Public radio produces the only classical music for most of the country. I pay $120 per seat at the Metropolitan Opera, but ordinary households, barely making ends meet with two paychecks and having no cable TV hook-up, can watch Live From the Met with rabbit ears. There would be no MacNeil-Lehrer Newshour without PBS, which means our potential leaders of tomorrow who are born in log cabins would be raised on a diet of Dan Rather. Boot does point out that there are 32 million households without cable, and adds that Newt Gingrich suggests cable vouchers for the poor as an economical substitute for PBS. Wrong again. A giant bureaucracy would soon appear to dispense the vouchers, and 32 million households that now have cable would apply for them. For most of the world, the only reliable radio broadcast is provided by the Voice of America, Radio Free Europe and Radio Liberty. How about radio vouchers for 4 billion poor people? This is the kind of free-market theory that will lead the masses right back to Bill Clinton in 1996 and a new New Deal.

CLINTON: The President’s confession that he raised taxes too much in 1993 was pounced upon by the Republican National Committee, which is spending a small fortune on TV ads that broadcast the President’s mea culpa to voters who didn’t get the message on the evening news. President Clinton, who obviously planned the confession and then apologized for the apology to furious congressional Democrats who had walked the plank for him on the tax increase, surely is laughing at the RNC for spending its own money to celebrate this late conversion to supply-side gospel. A political flip-flop generally hurts a candidate when he flips in the wrong direction. A politician who confesses error and promises to mend his ways is especially effective when he blurts this out unexpectedly, as this is taken as a genuine conversion. In vino veritas. For political aficionados, it is a pleasure to watch President Clinton run with the ball, no matter that he may be on the team you are rooting against. 

DOLE: Bob Dole did not hurt himself in reversing his stance a second time on that $1000 contribution from gay Republicans, as he got the direction right. He set himself back, though, by blaming his staff, which is the kind of personality quirk that will keep him from the White House. Dole continues to pile up endorsements, which makes him feel formidable, but we are not in contact with anyone in Washington who does not sense Dole’s chances flowing in the opposite direction. Any credit he might get for legislative victories in the weeks ahead will not translate into a winning hand against President Clinton, whose strategy of a kinder-and-gentler shadowing of the Republicans is especially geared to beat Dole. 

POWELL: Word is spreading that General Colin Powell is definitely going to make the race and will announce within three weeks. This “definite,” however, does not take into account the fact that generals do not get to four stars unless decisions are made at the last possible minute, when the last possible intelligence is available. Powell has not hurt himself with clarification of his positions on social policy, but he did hurt himself in a big way in seeming to respond to white pressure groups on the Million Man March. A ha-ha on the political grapevine carries the rumor of a Powell-Kemp ticket, with Powell going after the white voters and Jack Kemp going after the black. Powell is being urged to run by the Beltway Establishment, which sees Powell as an antidote to the Gingrich revolution. David Broder of The Washington Post insists that Powell run to prove he has not simply been teasing the voters in order to sell books. Kemp is now being attacked by Beltway conservatives who fear he will cause trouble in the weeks ahead while the Gingrich revolutionaries are putting the screws to the New Deal. The conventional assumption is that if Powell enters next month, it will push all other candidates aside, leaving Powell and Dole to slug it out. A Powell entry complicates life for Steve Forbes, now competing for the same voters in the anti-austerity wing of the GOP identified with Jack Kemp. When Kemp’s Tax Commission reports late next month, he will have to decide where to put his political chips. If he were to join the Forbes campaign as national campaign chairman, that -- and Steve’s deep pockets -- would dilute Powell’s strength -- a consideration a four-star general has to take into account. (I still think Powell belongs in Forbes’s State Department, which conservative activists would also prefer.) Kemp is shaping up as the man on the margin.

Jude Wanniski


Explanations of the factors boosting the German deutschemark abound, most dealing with political and economic uncertainties among the EU members, but the real culprit for the mark’s move above 1.40/dollar is an overly tight Bundesbank monetary policy that is failing to accommodate liquidity demand. The DM/gold price, at yesterday’s close of 528/oz., is now within a mark of its lowest level of the year. In relation to the dollar, the DM is now higher than it was prior to the mid-August G-7 operation that was painted as a master stroke of coordinated foreign exchange intervention. We were dubious at the time (“The Dollar’s Big Comeback,” August 16, 1995) about the effectiveness of the $/DM intervention since, unlike the Bank of Japan’s use of dollar purchases to expand yen liquidity permanently, the Fed-Bundesbank operation was sterilized by the two central banks. Now, not only has the DM’s deflationary bias become obvious against the dollar, gold and most European currencies, it also has sent the yen/DM cross (at ¥72 to the mark) to its lowest point in nearly three years. Perhaps due to wariness of the mark’s strength, the BoJ has been running an essentially neutral policy aiming to keep the yen from depreciating much further against the dollar at this time. The fragilities of the Japanese financial system may actually be playing an important role in keeping the BoJ from more aggressive injections of liquidity. In the longer run, expansion of yen liquidity is probably the single most important step that can be taken to restore the asset quality of the Japanese banking system. At present, though, pressure on the system is so strong, and collateral so weak, BoJ policy appears aimed at least partly at maintaining the value of one asset in the banks’ portfolios that has shown significant appreciation during the past year: Japanese Treasuries. The yield on 10-year government bonds has dropped from 4.75% to 2.8%. Sustaining the interest of international portfolios in such a low-yielding instrument would be extremely difficult with a steadily depreciating yen, meaning yields will inevitably rise and the banks’ gains dissipate.

David Gitlitz